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Subnational institutions and EMNE acquisitions in advanced economies: institutional escapism or fostering?

Rishika Nayyar (Indian Institute of Foreign Trade, New Delhi, India)
Shameen Prashantham (China Europe International Business School, Shanghai, China)

Critical Perspectives on International Business

ISSN: 1742-2043

Article publication date: 7 September 2020

Issue publication date: 12 August 2021

461

Abstract

Purpose

The purpose of this paper is to examine whether subnational market-supporting institutions in Indian states affect the likelihood of Indian multinational enterprises (MNEs) to undertake acquisitions in advanced economies (AEs) rather than emerging economies (EEs) and, if so, which mechanism – institutional fostering or escapism – underlies the phenomenon.

Design/methodology/approach

The paper uses a logistic regression model on a dataset of 647 firm-level cross-border acquisitions (CBAs) undertaken by Indian MNEs during the period 2010–2016.

Findings

The paper finds support for the institutional escapism mechanism, as opposed to the institutional fostering mechanism, underlying Indian MNEs’ acquisitions in AEs (rather than EEs). That is, firms headquartered in Indian states where market-supporting institutions (such as economic liberalization and efficiency of legal systems) are weak are more likely to undertake CBAs in AEs than in EEs as an escapist response to weak subnational institutions at home.

Originality/value

The paper highlights the relevance of the mainstream international business (IB) concept of emerging market multinational enterprises (EMNEs) internationalization to critical IB scholarship by examining subnational institutional influences on EMNEs’ foreign market choice between AEs and EEs. In particular, by providing evidence for the institutional escapism mechanism which has potential negative socioeconomic consequences in the region of the investing firm, the paper adds to critical IB research which places great emphasis on the examination of inequalities and draws attention to the EMNE context as a suitable setting for further research on internationalization from a critical perspective.

Keywords

Acknowledgements

The authors thank the Editor and two anonymous reviewers for their constructive feedback and guidance during the review process. An earlier version of the paper was presented at the 2018 Academy of International Business Conference in Minneapolis, where we received much appreciated feedback from Prof Mike W. Peng. The authors acknowledge Bhumika Billa for her assistance with copy-editing.

Citation

Nayyar, R. and Prashantham, S. (2021), "Subnational institutions and EMNE acquisitions in advanced economies: institutional escapism or fostering?", Critical Perspectives on International Business, Vol. 17 No. 3, pp. 417-443. https://doi.org/10.1108/cpoib-01-2019-0007

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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